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The opioid crisis is hurting prospects for the U.S. labor market

Opioid abuse kills approximately 100 Americans each day. But in addition to driving an escalating public health crisis, drug issues in the U.S. may be having significant implications for the labor market.

“The opioid epidemic is intertwined with the story of declining prime-age participation, especially for men, and this reinforces our doubts about a rebound in the participation rate,” Goldman Sachs’ Jan Hatzius said.

The labor force participation rate (LFPR), or the percentage of working-age people who are either working or actively looking for work, currently stands at 62.7%. This is significantly below the 67% level reached 20 years ago, and it’s the second lowest among OECD countries.

Importantly, the share of prime-age men (ages 25-54) in the labor force has declined significantly. The participation rate for this population has tumbled from 98% in 1954 to 88% currently.

Some economists have speculated that a recovery in the participation rate could help fuel further economic growth. However, Hatzius questions exactly how many of these folks are actually qualified to work.

“The key forward-­looking economic question is what the drug crisis means for the employment prospects of US workers,” he said. “Does the drug epidemic imply that many of the remaining pool of non­working Americans are nearly unemployable? Could the unemployment rate now overstate true slack?”

The Fed’s May Beige Book referenced reports that job applicants for some low-skilled positions were not able to pass drug tests. This comes as many employers struggle to fill job openings, which are at a record high.

Economist Alan Krueger has shown that almost 50% of prime-age men not in the labor force take pain medication every day. This is confirmed by data cited by Goldman Sachs, which showed out of all admissions to substance abuse treatment services, 47% of individuals not in the labor force were admitted for opioids.

And, of course, the economic consequences of the opioid epidemic extend beyond the labor market. Studies show the opioid epidemic has lowered worker productivity and increased health care costs. In fact, a study cited by Goldman put the total cost at almost $80 billion in 2013, and the crisis has grown significantly since then.

This problem is unlikely to go away anytime soon. There are as many opioid prescriptions written annually in the US as there are adults. With just 5% of the world’s population, the US consumes 80% of its opioids. And the impact goes beyond the health and wellness of the population.